Commercial Lease Calculator Formula

Understand the math behind the commercial lease calculator. Each variable explained with a worked example.

Use the Commercial Lease Calculator

Formulas Used

Year 1 Monthly Total

monthly_total_yr1 = total_annual_yr1 / 12

Year 1 Annual Total

annual_total_yr1 = total_annual_yr1

Annual Base Rent

base_rent_annual = annual_base_rent

Annual NNN Charges

nnn_annual = annual_triple_net

Free Rent Savings

free_rent_savings = free_rent_value

Effective Rent Per Sqft

effective_rent_psf = square_footage > 0 ? (total_base_over_term - free_rent_value + annual_triple_net * lease_term_years) / (square_footage * lease_term_years) : 0

Variables

VariableDescriptionDefault
square_footageRentable Square Footage(sqft)3000
base_rent_psfBase Rent (per sqft/year)(USD)25
cam_psfCAM Charges (per sqft/year)(USD)8
insurance_psfInsurance (per sqft/year)(USD)2
tax_psfProperty Tax (per sqft/year)(USD)5
annual_escalationAnnual Rent Escalation(%)3
lease_term_yearsLease Term(years)5
free_rent_monthsFree Rent Months2
annual_base_rentDerived value= square_footage * base_rent_psfcalculated
annual_camDerived value= square_footage * cam_psfcalculated
annual_insuranceDerived value= square_footage * insurance_psfcalculated
annual_taxDerived value= square_footage * tax_psfcalculated
annual_triple_netDerived value= annual_cam + annual_insurance + annual_taxcalculated
total_annual_yr1Derived value= annual_base_rent + annual_triple_netcalculated
free_rent_valueDerived value= annual_base_rent / 12 * free_rent_monthscalculated
total_base_over_termDerived value= annual_escalation > 0 ? annual_base_rent * ((pow(1 + annual_escalation / 100, lease_term_years) - 1) / (annual_escalation / 100)) : annual_base_rent * lease_term_yearscalculated

How It Works

Commercial Lease Types

Commercial leases come in several structures that determine who pays operating expenses.

Common Structures

  • Gross Lease: Landlord pays all operating expenses; rent is all-inclusive
  • Modified Gross: Tenant pays some expenses (often utilities and janitorial)
  • Triple Net (NNN): Tenant pays base rent + CAM + insurance + property tax
  • Absolute Net: Tenant pays everything including structural repairs

    • Key Terms

  • CAM (Common Area Maintenance): Shared building costs (cleaning, landscaping, management)
  • Escalation: Annual rent increase (fixed percentage or CPI-based)
  • Free Rent / Concession: Rent-free months at lease start
  • TI Allowance: Landlord contribution toward tenant improvements

    • Evaluating a Lease

    Always calculate the effective rent per square foot over the full term, accounting for escalations, free rent, and TI allowance.

    Worked Example

    3,000 sqft NNN lease at $25/sqft base rent, $8 CAM, $2 insurance, $5 tax. 3% annual escalation, 5-year term, 2 months free rent.

    square_footage = 3000base_rent_psf = 25cam_psf = 8insurance_psf = 2tax_psf = 5annual_escalation = 3lease_term_years = 5free_rent_months = 2
    1. 01Annual base rent: 3,000 x $25 = $75,000
    2. 02Annual CAM: 3,000 x $8 = $24,000
    3. 03Annual insurance: 3,000 x $2 = $6,000
    4. 04Annual tax: 3,000 x $5 = $15,000
    5. 05Annual NNN charges: $24,000 + $6,000 + $15,000 = $45,000
    6. 06Year 1 total: $75,000 + $45,000 = $120,000 ($10,000/month)
    7. 07Free rent value: $75,000 / 12 x 2 = $12,500
    8. 08Total base rent over 5 years (with escalation): approximately $397,728

    Ready to run the numbers?

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